A series of blog posts highlighting an important topic or trend in the development through enterprise community. In the most recent Big Idea series, NextBillion partnered with Ashoka to showcase affordable housing innovations.

Friday, July 20, 2012

Stuart L. Hart moderated a discussion during Business Day at the Rio+20 Conference last month.

Editor's Note: Filippo Veglio, deputy director of the World Business Council for Sustainable Development (WBCSD) Development Focus Area, attended the Rio+20 Business Day last month and shares key takeaways from the organization's sessions. His previous post on the “Business solutions to enable energy access for all: Achieving scale” event can be found here.

Business Action for Sustainable Development (BASD 2012), a temporary coalition of 13 international business organizations, hosted more than 800 leaders of government, business, United Nations, NGOs, and other organizations at the BASD 2012 Business Day on June 19 in Rio de Janeiro. The event was held under the theme “Achieving Scale” and formed the culmination of a year-long process to ensure the business input to the Rio+20 conference was heard.

The two dozen sessions on June 19 featured 24 interactive workshops and plenary sessions and focused on identifying scalable business solutions on a variety of key topics including energy, water, natural resources, technology and policy development.

During the Business Day, my organization, the World Business Council for Sustainable Development (WBCSD), organized a session focused on “Eradicating poverty through inclusive business solutions”. I have put together some of the highlights from the session below, including key conclusions and recommendations.

In a nutshell, the session in Rio highlighted inclusive business models from different sectors and countries as examples of sustainable, market-based solutions in support of poverty eradication and social inclusion in the developing world. It encouraged companies to embrace inclusive business activities by identifying key success factors and opportunities. Finally, it facilitated a discussion between companies and stakeholders from bilateral and multilateral donor organizations around how the business contribution can be effectively scaled up in practice.

Marcel Engel, managing director of the WBCSD’s Development Focus Area, kicked off the session with some perspectives (see slides here) on the role of business as a solution-provider in the transition toward a more inclusive, resource efficient and low carbon economy.

Thereafter, three speakers took the floor:

Stuart L. Hart, Samuel C. Johnson Chair in Sustainable Global Enterprise and professor of management at Cornell University's Johnson School of Management, set the scene for the afternoon’s discussions, reflecting on the evolution of this area of work among the business community. As the thought leader in this space, Hart, with the late C.K. Prahalad, wrote the path breaking 2002 article The Fortune at the Bottom of the Pyramid, which provided the first articulation of how business could profitably serve the needs of the four billion poor in the developing world.

According to Hart, the practice of "eco-efficiency" (a concept that emerged from the original Rio Summit in 1992) as a private-sector based strategy for sustainable development is a major accomplishment and has significantly reduced the impact per unit of output in economic activity. However, as he laid out in this blog post, “we have overshot the carrying capacity of the planet and serious repercussions are now inevitable. (…) Corporate eco-efficiency (greening) strategies aimed at incrementally reducing negative social and environmental impacts, while important, would not be nearly adequate to the challenge of global sustainability in the decades ahead.”

In Hart’s view, so-called "beyond greening" strategies - leapfrog clean technologies and business models that include and attempt to lift the four plus billion poor in the developing world - are essential if we are to fundamentally change the course of the global economy and set it on a course to sustainability. On his list of emerging and disruptive technologies that could succeed in emerging markets: renewable energy, distributed generation, point-of-use water treatment, biomimicry, biomaterials, sustainable agriculture, information and communication technologies, and nanotechnology. By driving innovation from the underserved spaces at the base of the economic pyramid, companies can avoid the inertia, stranded assets, and customer un-learning problems they face in developed markets. Read more about this topic here.

Hart concluded his presentation with an overview on his key learnings from 10 years of working in the area of inclusive business development. He structured his thoughts around the following six keywords, all aimed at driving sustainable innovation from the BoP:

Embedding: importance of engaging the community itself (“co-creation”) and developing a participatory approach that develops a strong value proposition that goes beyond a more traditional “rifle shot” approach of product development.

Converging: Ten years ago, the focus was on selling to the BoP without taking into account the environmental consequences as well as the generation of economic activities that can help lift low-income segments’ incomes. This point links back to the aforementioned idea of “beyond greening” strategies, where the BoP acts as the incubator for tomorrow’s clean technology solutions.

Enabling: inclusive business is not traditional product development. This point refers to the need to create new innovation “white space” within companies and the company leadership allowing things to happen differently (incl. via new metrics of success), as most innovations end up crushed by existing structures.

Scaling: most efforts get stuck in pilots – a persuasive value proposition, and a more imaginative approach, will ensure that the pilot can be scaled deep, out, and up. This can also lead to the trickling up of business solutions from the developing world to the middle or even to the top of the economic pyramid, in what is commonly known as “reverse innovation”.

Measuring: this refers to the importance of creating mutual value through inclusive business ventures, i.e., expanding the pie for everyone. The company needs to embed the triple bottom line principles from the start, and needs to engage in measuring the on-the-ground impact of the venture.

Incentivizing: government policies have a key role as enablers and can provide the necessary “tailwinds” to initiatives in this domain. Also, incumbents often stand in the way of innovation in mainstream markets, having a vested interest in the status quo. Hart feels that underserved markets, where the infrastructure has not yet been built out, offer a clean slate and ideal testing ground for companies to develop disruptive clean technologies.

Yogesh Chander Deveshwar, chairman of ITC Ltd., a multi-business conglomerate and one of India’s leading private companies, provided a perspective on the “Business of Development”. He highlighted ITC’s e-Choupal initiative, a farmer empowerment program, as a tangible example of how substantial (i.e., large scale) the impact of a business-led initiative can be at the level of achieving both business targets (distribution, product design & innovation, etc.) and socio-economic development (enabling sustainable livelihoods in rural areas). Over the last 12 years, ITC has set up about 6,500 Internet access kiosks in rural areas to enable farmers to retrieve marketing and agricultural information, benefitting 4 million farmers. The continuing innovation ITC e-Choupal exhibits in its “version 3.0” is expected to benefit more than 10 million farmers through integrated use of mobile phones for more personalized services. ITC is also partnering with banks to offer farmers access to credit, insurance and other services. Furthermore, farmers are beginning to suggest – and in some cases, demand – that ITC supply new products or services or offer additional crops, such as onions and potatoes. Farmers are thus becoming a partner in product innovation for ITC.

Luiz Ros, manager of the Opportunities for the Majority Sector Office (OMJ) at the Inter-American Development Bank, shared his thoughts on how the bank is leveraging inclusive business models to transform the lives of the poor in Latin America and the Caribbean. Created in 2008, OMJ has so far invested some US$200 million in over 34 projects to support the implementation of inclusive business models in the region in areas such as health, education, housing, infrastructure, and financial services. Ros highlighted that OMJ has witnessed an increased interest from companies in low-income markets of the region, and how the bank is facilitating access to technical cooperation and risk sharing facilities to model and pilot these ventures. According to Ros, one of the best levers to reach scale are platforms, i.e., the public or private distribution and/or sales networks that have been built to cater to low-income markets and, as a by-product of its operations, generates potentially useful information for additional market-based offerings. Platforms can take the form of hardware stores, conditional cash transfer programs, microfinance, or utilities. Read more on this topic here. (The OMJ Content Partner blog on NextBillion is here).

Salas explained how Masisa, a leading Latin American company in the wood board business for furniture and interior architecture, is actively engaging the population segment earning between US$ 5,000 and US$ 10,000 per year as part of its growth plan, in view of incorporating them in the value chain and contributing to improving their quality of life. This engagement includes working with a growing network of small and medium-sized carpenter businesses across 10 countries, and requires in-depth knowledge about the habits and necessities of low-income communities (e.g. via ethnography) in view of developing adequate solutions.

Lopez shared some reflections on Nestlés’s experiences in driving inclusive business solutions – and shared value – along their global operations in the domains of nutrition, water, and rural development. These activities build on a strong base of performance in environmental sustainability and compliance with international laws and codes of conduct, as well as the company’s business principles.

Valuation – the imperative to go beyond shareholder value by creating an institutional mechanism that appropriately values and rewards the social contribution of business.

Competiveness – inclusive business can be a unique source of competitive advantage for a company, provided that it is founded on a long-term vision that aligns a company’s purpose, values and operations

Framework conditions – the need for an enabling policy environment that acts as a “tailwind” rather than “headwind” for business. At the same time, companies have to craft strategies that work in the face of these headwinds.

I myself wrapped up the session by inviting the audience to see “inclusive business in action” during a half-day visit to Rio’s favelas on June 20, co-organized with the Brazilian Business Council for Sustainable Development (CEBDS). The visit featured the inclusive business work of Itaú Unibanco (in Complexo do Alemão), Banco do Brasil (in Complexo do Alemão) and Banco Santander (in Vila Cruzeiro) in enabling access to finance to local communities. Participants had the opportunity to visit local clients and their respective income-generating activities.